TERRE HAUTE —
Indiana legislators Greg Steurwald and Kreg Battles are on opposite sides of the political aisle in the Statehouse, but they’re teaming up this summer to convince their colleagues to declare a new holiday for Hoosiers.
Borrowing the idea from other statets that offer consumers temporary tax-free shopping on items from bookbags to computers, Steurwald and Battles say it’s time for Indiana residents to cash in.
On their side are Indiana retailers, who say issuing a temporary moratorium on Indiana’s 7-percent sales tax will have popular appeal and spur spending by shoppers inclined to pick up taxable items along with their nontaxable goods.
Opponents say the tax-free holiday comes with a cost: a loss of state revenues that pay for education and other services.
Later this summer, the legislature’s Commission on State Tax and Financing Policy will take up the issue and hear arguments on both sides. Steurwald may cite his own experience with Florida’s sales tax holiday, which he celebrated when he vacationed there with family in past years. “We would spend a ton of money to save not spending that 7-percent sales tax,” Steurwald said.
“It’s great for working families,” said Battles. “And it’s good for retailers and the economy.”
The idea for a sales tax holiday in Indiana isn’t new, but it’s been shot down over the past couple of years by state budget makers who were worried about declining sales-tax revenues brought on by the recession.
The economic downtown drained the state’s tax collections, forcing millions in state agency spending cuts and a $300 million cut to K-12 schools.
Citing similar concerns, Florida canceled its sales tax holiday in 2009 but brought it back this year, for a weekend in mid-August when shoppers will see sales tax waived on clothing up to $75 and school supplies up to $15. Other states offer even better deals: During the first weekend in August, shoppers in Missouri and North Carolina can spend up to $3,500 on a computer without having to pay the sales tax.
Steurwald and Battles think a sales tax holiday might get a better hearing this year because state revenues are up. The state’s sales-tax collections in May totaled $522 million for the month, $28 million more than what was collected for the same period last year.
A bill backed by Steurward and Battles during the session that ended in April would have given back-to-school retail shoppers a two-day break on the sales tax for items up to $1,000. The cost to the state, in lost revenues, would have run anywhere from $17 million to $42 million, according to a fiscal impact study by the nonpartisan Legislative Service Agency.
That’s too much for the chief budget maker in the Indiana House, Rep. Jeff Espich, who chairs the House Ways and Means committee. “I’ve never been that fond of sales tax holidays,” said the Uniondale Republican. “You have to wonder what advantage it offers if we have to cut spending in education or find something else to tax to make up for the loss.”
Retailers who belong to the Indiana Retail Council are hoping they can convince Espich to at least entertain the idea. Council president Grant Monahan said the benefits of sales tax holidays are underreported.
He cites studies conducted by retailers in states with sales tax holidays that say it benefits brick-and-mortar businesses because it appeals to shoppers who might otherwise buy items online, where big retailers like Amazon.com don’t collect sales taxes. Those studies also say the holiday puts consumers in the mood to shop, which leads to impulse buys on taxable items and generates a steady stream of store traffic for days after.
“This is what summer study committees are for,” Battles said. “You get to take the temperature of legislators to see how they really feel about an idea.”
Maureen Hayden is the Statehouse bureau chief for the Triubne-Star. You can reach her at maureen.hayden@indianamediagroup.com.
15 states already have tax-free allowances
At least 15 states are holding sales tax holidays this year, according to the Washington, D.C.-based Federation of Tax Administrators. Here’s a sampling:
Alabama: 3-day tax holiday in early August for clothing up to $100, computers up to $750 and school supplies up to $50
Connecticut: 7-day tax holiday in late August for clothing and footwear up to $300
Iowa: 2-day tax holiday for clothing up to $100
Louisiana: 3-day tax holiday for firearms and ammunition
New Mexico: 3-day tax holiday for clothing up to $100m computers up to $1,000 and school supplies up to $15
North Carolina: 3-day tax holiday in early August for clothing and school supplies up to $100, sports equipment up to $50 and computers up to $3,500
Texas: 3-day tax holiday in May for energy-efficient air conditioners up to $6,000
Virginia: 7-day tax holiday for hurricane-preparedness items up to $60 and generators up to $1,000
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